Apple Takes Aim at the TV Market

Jobs unveils movie downloads, Internet-TV links and new iPods to press his advantage.

SAN FRANCISCO — Steve Jobs built a career, a company and, some would say, a cult by picking tomorrow's fight -- a cunning the Apple Computer Inc. chief executive displayed Tuesday as he introduced an online movie service and a fresh crop of iPods.

Anticipating archrival Microsoft Corp.'s plan to unveil its own portable media player this week -- a potential iPod challenger called Zune -- Jobs again shifted the battlefield by showing off a device he called the missing piece that will fuse television and the Internet.

Eschewing his customary black turtleneck for a black button-down shirt, Jobs said Apple planned to introduce the device, tentatively dubbed iTV, early next year, just as Microsoft hopes to start building a market for Zune.

Making TVs and personal computers work together better is seen as the key step toward the broad online distribution of movies and television shows. The Internet is already disrupting Hollywood's traditional business models as audiences migrate online. Apple, for instance, has sold 45 million video downloads since late last year.

But the transition has been slowed by the lack of a standard, easy-to-use way to display the countless choices of the Internet on the most popular screen in the house. People want to watch movies on their living room TV, not on their office PC or the tiny screen of a portable device.

Rarely does Jobs provide glimpses of Apple's pipeline. Tuesday's peek may signal that despite Apple's dominance of the portable entertainment market, it can ill afford to divert its attention from Microsoft.

Can Apple and its boss pick the next fight or will the Microsoft juggernaut overtake them the way it did a generation ago with Windows?

Analysts remain skeptical that Microsoft initially will grab anything more than the sliver of the portable player market not already claimed by Apple. They note that the Redmond, Wash.-based software giant is entering a market Apple dominates with 88% of legal music downloads.

"They're certainly playing catch-up. They are coming to the market this fall basically in the same place that Apple was five years ago," said analyst Van Baker of technology consulting firm Gartner Inc. "Could they do a good job with it? Yeah. Could they do some damage to Apple? Unlikely."

Philip Schiller, Apple's senior vice president of product marketing, said the company had encountered other formidable competitors, including Yahoo Inc. and Sony Corp. "We're too focused on the work that we do to feel worried," he said.

Five years ago, though, Sony miscalculated Microsoft's potential in new markets and its willingness to lose billions of dollars as it builds a customer base.

Sony's PlayStation 2 video game console owned half the market when Microsoft thrust its Xbox into an industry in which it had no experience. Xbox 360 is now the industry leader in next-generation consoles, and Sony is trying to get its entry, the much-delayed PlayStation 3, on shelves in time for Christmas.

The same two engineers behind Xbox -- J Allard and Robbie Bach -- are in charge of Zune. And the market is still young. Only about 21% of Americans own a digital music player, according to market researcher NPD Group.

"Robbie's team is the strongest team at Microsoft," Baker said.

In the short term, at least, analysts are betting on Apple. The Cupertino, Calif., company has managed to keep competitors off balance through rapid innovation -- even going so far as to discontinue its most popular iPod, the mini, last September and replace it with the more slender nano.

The latest announcements from Apple are no exception. The company has shrunk its gum-stick-sized shuffle MP3 music player, which has sold 10 million units, to the size of a matchbook to make it the smallest product on the market. The new version of its compact nano music player is 40% smaller with twice the storage capacity.

Apple is also revamping its iTunes online music store. The new movie offerings, along with the already available TV shows, will be presented in the same resolution displayed by most televisions, rather than the lower resolution of iPods.

The Times reported on Apple's movie download service last week. Other companies -- including Amazon.com Inc.'s Unbox, CinemaNow Inc., Movielink and Time Warner's AOL -- operate online video stores that enable computer users to rent or download movies. CinemaNow even allows burning some films to DVD.